World stocks fall on fear of more China rate hikes

A woman with a child rides past the electronic stock board of a securities firm in Tokyo, Thursday, June 3, 2010. Pic: AP.

HONG KONG (AP) — World stock markets were mostly lower in light trading Monday, as investors’ fears about further interest rate hikes in China overcame a rally earlier in the day.

In early European trade, France’s CAC-40 fell 56.58, or 1.46 percent, to 3,843.81 and Germany’s DAX was down 98.92, or 1.4 percent, to 6,958.77. Britain’s FTSE 100 and several Asian markets were closed for a holiday.

Stocks rallied early in the day as investors seemed to shrug off a weekend move by China’s central bank to raise interest rates in a bid to rein in soaring inflation. Traders had speculated that China would further tighten its monetary policy to cool inflation.

A woman with a child rides past the electronic stock board of a securities firm in Tokyo, Thursday, June 3, 2010. Pic: AP.

But the relief didn’t last as investors began to fear that Chinese officials would continue to act strongly to keep a lid on rising prices.

“An increase in interest rates is no way to do good to the market, and it comes amid deep concerns of more interest rate rises early next year,” said Liu Kan, an analyst at Guoyuan Securities, in Shanghai.

Higher rates would make it more costly for companies to borrow money from China’s state-owned banks. China’s economy has been powered by a flood of money from bank lending and stimulus spending.

The Shanghai Composite index fell 53.76 points, or 1.9 percent, to 2,781.40 while the Shenzhen Composite Index for China’s smaller, second market fell 31.49, or 2.4 percent, to 1,260.53. Trading volume in Shanghai was a fraction of the normal trading amount.

South Korea’s Kospi fell 7.41, or 0.4 percent, to 2,022.19 and benchmarks in Thailand and India also fell.

Japan’s benchmark Nikkei 225 stock average rose 76.80, or 0.7 percent, to 10,355.99 while benchmarks in Singapore and Taiwan also rose. Australia, New Zealand and Hong Kong markets were closed Monday for the Christmas holiday.

China’s rate hike announced Saturday will lift the benchmark lending rate by 25 basis points to 5.81 percent. The Chinese central bank said the one-year deposit rate will also climb by 25 basis points to 2.75 percent.

Beijing made similar moves Oct. 19 to tame inflation. It is an especially sensitive issue in China, where poor families spend up to half their incomes on food and rising inflation could threaten political stability.

Inflation in China jumped to 5.1 percent in November — a 28-month high — despite a crackdown on speculation and repeated moves to curb a flood of money circulating in the economy from massive stimulus spending and bank lending.

In currencies, the dollar dipped to 82.73 in Tokyo on Monday from 82.89 yen in New York late Friday. The euro stood at $1.3144 from $1.3113.

The U.S. stock markets were closed Friday for Christmas.

Benchmark oil for February delivery rose 34 cents to $91.85 in electronic trading on the New York Mercantile Exchange.